Singing Machine Announces Third Quarter 2019 Earnings Report

FORT LAUDERDALE, Fla., Feb. 14, 2019 (GLOBE NEWSWIRE) -- via NEWMEDIAWIRE -- The Singing Machine Company, Inc.  (“Singing Machine” or the “Company”) (OTCQX: SMDM) – the worldwide leader in consumer karaoke products – today announced its financial results for its third quarter ended December 31, 2018.

Third Quarter Snapshot:

• Net sales of $19.5 million for the quarter ended December 31, 2018.
• Gross margin improved by 1% from 27.9% to 28.9%.
• Inventory for quarter-end reduced by $2.5M from March 31, 2018.
• Income from operations of $1.8M.
• Net Income improved to $1.3M for the quarter ($0.03 per share).
• 56% increase in music subscription revenue YoY.             

Singing Machine reports net sales of approximately $19.5 million for the quarter-ended December 31, 2018 period, compared to $21.5 million in the same period last year.  The decrease in net sales from the same period in the prior year was primarily due to the bankruptcy of Toys ‘R’ Us, which accounted for approximately $3.7 million of the decrease which was offset by an increase in sales of approximately $1.4 million to an existing major customer due to the timing of shipments shifting from the previous quarter to the current quarter.

The Company reported gross profit margin improved by 1% from 27.9% to 28.9% from the same quarter last year.  The increase in gross margin was mainly due to better costing from factories in Asia due to the stronger US dollar.  Total operating expenses increased to $3.8 million from $3.6 million in the prior year.  The increase was primarily due to an increase in selling expenses including commissions, marketing expenses, and co-op advertising programs granted to retail customers.

As a result, the Company reported a slight increase in net profit of $1.3 million ($0.03 per share on a fully diluted basis) compared to approximately $1.2 million in the prior year.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, “During the third quarter, we continued to see strong demand for in-home music and singing entertainment, however we did not see any major retailers significantly replace the lost sales from the bankruptcy of Toys ‘R’ Us. We remain confident that the category is strong and that the industry will ultimately recover those lost sales caused by the liquidation of Toys ‘R’ Us.  Despite the rapidly changing retail market, we remain the dominant worldwide market leader in the industry and are currently focused on organic growth through partnerships and some exciting licensing opportunities that will soon be announced.”

Bernardo Melo, VP of Sales & Marketing, commented, “Aside from partnerships and licenses, our primary growth strategy remains focused on expanded international distribution.  We recently attended the Nuremberg Toy Fair, one of the largest international toy fairs in the world.  We saw large untapped territories for karaoke and experienced a lot of success in the new markets that launched Singing Machine product this past fall.  We look forward to carrying that momentum into 2019.”

Earnings Call Information:

The Company will host a conference call today, Thursday, February 14, 2019, beginning at 10:00 am Eastern time to discuss these results and answer questions. If you would like to participate on the call, please dial 877-876-9174 and use conference ID: SMDM.

An audio rebroadcast of the call will be available later in the day after the earnings call and can be heard at: www.singingmachine.com/investors.

About The Singing Machine

Based in the U.S., Singing Machine® is the North American leader in consumer karaoke products. The first to provide karaoke systems for home entertainment in the United States, the Company sells its products worldwide through major mass merchandisers and on-line retailers. We offer the industry's widest line of at-home karaoke entertainment products, which allow consumers to find a machine that suits their needs and skill level. As the most recognized brand in karaoke, Singing Machine products incorporate the latest technology for singing practice, music listening, entertainment and social sharing. The Singing Machine provides consumers the best warranties in the industry and access to over 14,000 songs for streaming and download.  Singing Machine products are sold through most major retailers in North America and also internationally. See www.singingmachine.com for more details.

Investor Relations Contact:
Brendan Hopkins
(407) 645-5295
investors@singingmachine.com
www.singingmachine.com
www.singingmachine.com/investors

Forward-Looking Statements
This press release contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward‑looking statements are based on current expectations, estimates and projections about the Company's business based, in part, on assumptions made by management and include, but are not limited to statements about our financial statements for the fiscal year ended March 31, 2018.  You should review our risk factors in our SEC filings which are incorporated herein by reference.  Such forward‑looking statements speak only as of the date on which they are made and the company does not undertake any obligation to update any forward‑looking statement to reflect events or circumstances after the date of this release.
 

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
		December 31, 2018			March 31, 2018
		(Unaudited)
Assets
Current Assets
	Cash	$	1,581,245		$	813,908
	Accounts receivable, net of allowances of $244,300 and
	$82,102, respectively		10,601,844			1,066,839
	Due from PNC Bank		-			6,212
	Accounts receivable related party - Starlight Consumer Electronics USA, Inc.		7,054			7,054
	Accounts receivable related party - Cosmo Communications Canada, Inc		199,707			-
	Accounts receivable related party - Winglight Pacific, Ltd		1,465,977			1,150,104
	Inventories, net		6,118,569			8,536,934
	Prepaid expenses and other current assets		112,383			137,970
	Deferred financing costs		13,333			13,333
	Total Current Assets		20,100,112			11,732,354
Property and equipment, net			582,434			450,305
Deferred financing costs, net of current portion			6,667			16,667
Deferred tax assets			515,136			937,137
Other non-current assets			12,039			11,523
	Total Assets	$	21,216,388		$	13,147,986
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable	$	3,359,610		$	1,614,748
	Accrued expenses		1,738,631			701,932
	Current portion of bank term note payable		250,000			500,000
	Due to related party - Starlight Electronics Co., Ltd		468,256			210,756
	Due to related party - Starlight R&D, Ltd.		110,846			113,116
	Due to related party - Merrygain Holding Co., Ltd.		128,290			89,803
	Revolving line of credit		2,931,118			-
	Refunds due to customers		-			445,484
	Reserve for sales returns		2,050,486			726,000
	Current portion of capital leases		14,282			-
	Current portion of subordinated related party debt - Starlight Marketing Development, Ltd.		815,367			689,792
	Total Current Liabilities		11,866,886			5,091,631
Bank term note payable, net of current portion			-			125,000
Capital leases, net of current portion			21,152			-
Subordinated related party debt - Starlight Marketing Development, Ltd.,
	net of current portion		-			125,575
	Total Liabilities		11,888,038			5,342,206
Commitments and Contingencies
Shareholders' Equity
	Preferred stock, $1.00 par value; 1,000,000 shares authorized; no
	shares issued and outstanding		-			-
	Common stock, Class A, $0.01 par value;  100,000 shares
	authorized; no shares issued and outstanding		-			-
	Common stock, Class B, $0.01 par value;  100,000,000 shares authorized;
	38,384,753 and 38,282,028 shares issued and outstanding, respectively		383,848			382,820
	Additional paid-in capital		19,672,314			19,624,063
	Accumulated deficit		(10,727,812	)		(12,201,103	)
	Total Shareholders' Equity		9,328,350			7,805,780
	Total Liabilities and Shareholders' Equity	$	21,216,388		$	13,147,986
See notes to the condensed consolidated financial statements

 

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
				For the Quarter Ended							For the Nine Months Ended
				December 31, 2018			December 31, 2017				December 31, 2018				December 31, 2017
Net Sales				$	19,452,450		$	21,461,835			$	45,593,906			$	58,203,731
Cost of Goods Sold					13,826,176			15,464,273				34,369,467				43,389,465
Gross Profit					5,626,274			5,997,562				11,224,439				14,814,266
Operating Expenses
	Selling expenses				2,236,777			1,971,728				4,698,141				4,816,931
	General and administrative expenses				1,629,054			1,739,664				4,341,175				4,784,167
	Bad debt expense (recovery), net				(104,244	)		(164,680	)			(155,596	)			2,157,561
	Depreciation				64,357			66,623				200,138				153,225
Total Operating Expenses					3,825,944			3,613,335				9,083,858				11,911,884
Income from Operations					1,800,330			2,384,227				2,140,581				2,902,382
Other Expenses																-
	Interest expense				(139,729	)		(145,922	)			(235,290	)			(241,503	)
	Finance costs				(3,333	)		(3,333	)			(10,000	)			(28,272	)
Total Other Expenses					(143,062	)		(149,255	)			(245,290	)			(269,775	)
Income Before Income Tax Provision					1,657,268			2,234,972				1,895,291				2,632,607
Income Tax Provision					(367,255	)		(1,080,142	)			(422,000	)			(1,220,511	)
Net Income				$	1,290,013		$	1,154,830			$	1,473,291			$	1,412,096
Net Income per Common Share
	Basic			$	0.03		$	0.03			$	0.04			$	0.04
	Diluted			$	0.03		$	0.03			$	0.04			$	0.04
Weighted Average Common and Common
	Equivalent Shares:
	Basic				38,384,753			38,282,028				38,338,599				38,271,946
	Diluted				39,459,369			39,137,161				39,413,214				39,127,079
See notes to the condensed consolidated financial statements

 

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
					For the Nine Months Ended
					December 31, 2018			December 31, 2017
Cash flows from operating activities
	Net Income			$	1,473,291		$	1,412,096
	Adjustments to reconcile net income to net cash used in operating activities:
		Depreciation			200,138			153,225
		Amortization of deferred financing costs			10,000			28,272
		Change in inventory reserve			(56,780	)		(125,000	)
		Change in allowance for bad debts			162,198			2,166,677
		Stock based compensation			42,879			163,581
		Change in net deferred tax assets			422,001			576,461
	Changes in operating assets and liabilities:
		Accounts receivable			(9,697,203	)		(12,844,066	)
		Due from PNC Bank			6,212			242,859
		Accounts receivable - related parties			(515,580	)		(1,213,269	)
		Inventories			2,475,145			(3,599,858	)
		Prepaid expenses and other current assets			25,587			44,483
		Other non-current assets			(516	)		-
		Accounts payable			1,744,862			3,005,248
		Accrued expenses			1,036,699			2,121,919
		Due to related parties			293,717			285,620
		Refunds due to customers			(445,484	)		(38,460	)
		Reserve for sales returns			1,324,486			2,987,357
			Net cash used in operating activities		(1,498,348	)		(4,632,855	)
Cash flows from investing activities
	Purchase of property and equipment				(288,740	)		(255,776	)
			Net cash used in investing activities		(288,740	)		(255,776	)
Cash flows from financing activities
	Net proceeds from revolving line of credit				2,931,118			3,465,332
	Proceeds from bank term note				-			1,000,000
	Payment of bank term note				(375,000	)		(250,000	)
	Proceeds from exercise of stock options				6,400			-
	Payment of deferred financing costs				-			(40,000	)
	Payment on subordinated related party debt				-			(1,109,064	)
	Payments on capital leases				(8,093	)		-
			Net cash provided by financing activities		2,554,425			3,066,268
Net change in cash					767,337			(1,822,363	)
Cash at beginning of period					813,908			2,305,439
Cash at end of period				$	1,581,245		$	483,076
Supplemental disclosures of cash flow information:
	Cash paid for interest			$	215,501		$	222,649
	Cash paid for income taxes			$	-		$	30,000
	Equipment purchased under capital lease			$	43,527		$	-
See notes to the condensed consolidated financial statements